On January 17, 2009, the Ministry of Health of the PRC (MOH), along with five other government ministries, promulgated the Opinions on Further Regulating Centralized Procurements of Pharmaceuticals Issued by Medical Institutions. The government issued these Opinions with the intention of controlling unreasonably high pharmaceutical prices, enhancing competition between pharmaceutical manufacturers, cracking down on commercial bribery, and alleviating the general public’s burden resulting from high expenses for pharmaceuticals.
The Opinions introduce substantial changes to a set of regulations on centralized procurements of pharmaceuticals that the same government agencies issued in September 2004 entitled the Provisions to Further Regulate Centralized Procurements of Pharmaceuticals through Bidding.
First, the most significant change that the Opinions introduce is the establishment of mandatory government-led and centralized online pharmaceutical procurement platforms to be built by provincial-level governments. The governments will establish special administration departments and not-for-profit platforms for the centralized procurement of pharmaceuticals, and the governments must ensure that the platforms are fully functional and have sufficient facilities, staffing and financing. According to the Opinions, all state-owned not-for-profit medical institutions at the county level or above must participate in the centralized procurements of pharmaceuticals. Other medical institutions are also encouraged to participate in the procurements. In principle, the centralized procurements of pharmaceuticals will be conducted once a year.
In contrast, Provisions No. 320 do not require mandatory online centralized procurements of pharmaceuticals although they require that all state-owned not-for-profit medical institutions at the county level or above participate in centralized procurements of pharmaceuticals through bidding. Before the issuance of the Opinions, relevant central government agencies repeatedly asked that a centralized online pharmaceutical procurement system be built; however, since it was not mandatory, the provinces explored dozens of different bidding forms, which presented problems to both the regulators and the participating enterprises. Now that the Opinions require that an online centralized procurement on a provincial basis be the only channel of pharmaceutical bidding, industry observers expect irregularities and chaos in the centralized pharmaceutical bidding processes to decrease.
Second, the Opinions require that each provincial-level government compile centralized pharmaceuticals procurement catalogues. In principle, all pharmaceuticals used by medical institutions must be included in the catalogues, except for narcotic pharmaceuticals and Class 1 psychotropic pharmaceuticals, which will be excluded. For Class 2 psychotropic pharmaceuticals, toxic pharmaceuticals, and radioactive pharmaceuticals that are under the state’s special administration, the provincial-level governments have discretion in determining whether to include them in the catalogues. Pharmaceuticals that are included in the catalogues will be procured through open bidding, online bidding, or collective bargaining, or directly on the online platform (applicable to pharmaceuticals that have repeatedly gone through the centralized procurement process with stabilized prices). Compared with Provisions No.320, the Opinions are more specific on how the catalogues will be compiled, and on what significance this has for pharmaceuticals.
In addition, the Opinions require that pharmaceutical manufacturers, as opposed to pharmaceutical wholesalers, directly bid for the pharmaceutical purchase and sale contracts under the centralized procurement regime. Provisions No. 320 provide, however, that either pharmaceutical manufacturers or wholesalers may directly bid for the contracts. Pharmaceutical manufacturers must distribute the pharmaceuticals directly to medical institutions, or may authorize distribution enterprises with modern logistics to deliver them, and in principle, the distributor may not further delegate the distribution responsibilities. Industry observers have pointed out that these rules will change the dynamics in the logistics industry by favoring well-established distributors with more resources while hurting smaller distributors.
According to the Opinions, the government will comprehensively evaluate pharmaceuticals under the centralized procurement system, prioritizing on their quality, and the reasonableness of their prices. The government will also take into consideration the pharmaceuticals’ clinical efficacy, service, reputation, and other factors.
Under the Opinions, medical institutions must enter into pharmaceutical purchase and sale contracts with the bid-winning pharmaceutical manufacturers or the wholesalers authorized by the manufacturer. Moreover, in general, the contractual term should not be less than one year. Payment must be made within 60 days from the goods’ delivery date. If a pharmaceutical enterprise fails to supply pharmaceuticals in accordance with the contract, or if a medical institution fails to purchase the drugs under the contract or to make timely payments, it must pay monetary damages amounting to a certain percentage of the contract value, which will be determined by the provincial-level agency overseeing the centralized procurement system.